AT&T Makes Bet on Video with $48.5 Billion DirecTV Bid

What The AT&T, DirecTV Deal Means For Consumers

By Liana B. Baker, Soyoung Kim and Marina Lopes

AT&T plans to pay $48.5 billion to buy DirecTV, in the latest sign that the wireless industry and the U.S. television market are set to converge as customers consume more video on their mobile devices.

The deal, announced Sunday, highlights AT&T's (T) pressing need for fresh avenues of growth beyond the maturing U.S. cellular business, which has become increasingly competitive.

The combination with DirecTV (DTV), the No.1 U.S. satellite TV provider with 20 million customers, would beef up Dallas-based AT&T's packages of cellular, broadband, TV and fixed-line phone services.

For DirecTV, the deal will enable it to offer broadband Internet for the first time to its U.S. customers, filling in a gap that had made the company vulnerable to cable rivals, which can provide Internet service through their networks.

"It gives us the parts to fulfill a vision we have had for a couple of years, that is, the opportunity and the ability to take premium content and deliver premium content over multiple points for the customer, whether it be through a smartphone, through a tablet, or television or laptop," said AT&T CEO Randall Stephenson, speaking on a conference call.

Stephenson's counterpart at DirecTV, Mike White, will stay on to run the satellite television business, which will continue to be based outside Los Angeles in El Segundo, California.

AT&T currently offers a video service known as U-Verse and Stephenson said during a conference call the company would continue to offer it after the acquisition is completed. It expects the deal to close in about a year.

AT&T and DirecTV made their announcement just a few months after Comcast (CMCSA) offered $45 billion for Time Warner Cable (TWC), a transaction that would create the leading U.S. cable and broadband Internet powerhouse. The Comcast proposal is now awaiting regulatory approval.

AT&T is offering $95 for each DirecTV share in a combination of stock and cash, a 10 percent premium over Friday's closing price of $86.18. It will finance the cash portion, $28.50 a share, with funds on hand, asset sales and financing already lined up.

The transaction has a total value of $67.1 billion, including the assumption of DirecTV's net debt.

To help its case with regulators, AT&T will sell its roughly 8 percent stake in Carlos Slim's America Movil, worth roughly $5 billion. DirecTV has some 18 million customers throughout Latin America.

Competitive Concerns

The logic behind the long-expected deal has raised some doubts. Some analysts and investors have questioned why AT&T, which is facing slowing growth, would buy DirecTV at a time when growth in U.S. satellite TV subscriptions has stalled. The growth of Web-based video services such as Netflix (NFLX) and Hulu mean that demand for satellite TV will slow further in the coming years.

There are also potential anti-competitive hurdles to clear. AT&T is likely to face questions from regulators about the deal's impact on competition in those areas where its U-verse service now competes with DirecTV in offering television.

AT&T said it expected to be able to add 15 million broadband customers, mostly in rural areas, within four years of the deal closing, adding to its base of 11 million current Internet customers.

Consumer advocates are already putting pressure on regulators to reject the deal.

%VIRTUAL-article-sponsoredlinks%"You can't justify AT&T buying DirecTV by pointing at Comcast's grab for Time Warner, because neither one is a good deal for consumers," said Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports.

The companies had thought about a combination for years, but discussions only took off in March following the Comcast-Time Warner Cable announcement.

The latest deal will immediately ratchet up the pressure on competitors. In particular, it raises questions about the No. 2 satellite TV operator, Dish Network (DISH) and what it might do. With 14 million subscribers, Dish trails DirecTV and has spent billions for wireless spectrum it has yet to use.

Dish's chief, Charles Ergen, has said that he doesn't have the cash to outbid AT&T for DirecTV. Dish tried to buy DirecTV in 2001 in a deal that was blocked by regulators.

DirecTV is the latest in a string of big takeover targets that AT&T has considered. Those include a failed bid for T-Mobile USA in 2011, as well as a potential takeover of Vodafone.

DirecTV, founded in 1994, has changed hands before. It had been previously owned by Hughes Electronics, which was part of General Electric (GE), Rupert Murdoch's News Corp. (NWS), and its most recent owner Liberty Media (LMCA), which sold its stake in 2009.

Buffett's Position

The deal, which comes after a 25 percent gain in DirecTV's stock price this year that was fueled by takeover speculation, represents a potential win for Warren Buffett's Berkshire Hathaway (BRK-B), the satellite provider's top shareholder.

Goldman Sachs (GS) and Bank of America Merrill Lynch (BAC) acted as financial advisers to DirecTV, and Weil, Gotshal & Manges, Jones Day and Wiltshire & Grannis served as legal advisers.

AT&T, which has an extensive internal M&A team, was also advised by Lazard, and on the legal side, Sullivan & Cromwell, Crowell & Moring, Arnold & Porter, Sidley Austin, Kellogg Huber Hansen Todd Evans & Figel and Gibson Dunn acted as legal advisers to AT&T.

DirecTV has agreed to pay a $1.4 billion breakup fee to AT&T in the event that it pursues another transaction with a higher bidder, the companies confirmed.

AT&T won't have to pay a penalty if regulators veto the deal.

(Additional reporting by Mike Stone; Editing by Steve Orlofsky, Frank McGurty and Matt Driskill.)

12 Purchases You Should Always Negotiate On
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AT&T Makes Bet on Video with $48.5 Billion DirecTV Bid
Car dealerships, unlike many other retailers, expect you to haggle. It's built into their price tags. So if you pay the sticker price for any new or used vehicle, basically ever, you're getting hoodwinked. When you walk into a dealership, prepare to haggle over just about everything -- the trade-in value of your car, the price of the car and extras like warranties. You'll have more leverage if you have more cash, but even cash-strapped buyers can and should negotiate.

Real estate agents expect some negotiation. But when buying a home, negotiation doesn't have to be all about price. If the seller isn't willing to come down on the price, ask for extras. For instance, ask that the seller pay more closing costs (which basically amounts to a cheaper deal for you). Or ask that the seller take care of some maintenance issues you found when you had the home inspected.

Mortgage companies will quote you a rate when you ask, but that doesn't mean you need to stick to that rate. If your credit is good (find out if it is, first) or you have a big down payment, you have plenty of leverage to negotiate a lower rate. And if you can't straight-up negotiate for a lower rate, you may be able to save by paying for points. This basically means you put more cash down for a lower rate, and, in some cases, it can save you a lot of money.
If you're renting from a landlord for the first time, rent may not be as negotiable. But if you're getting ready to renew your lease, don't just accept the now-higher rental price you're quoted. Keep in mind that it's a pain for rental companies and landlords to get you moved out, prep the property and move someone new in. Unless you're living in the hottest area in town, they'll likely lose money looking for a new renter. This means they may be more willing than you'd think to negotiate pricing.
Insurance companies usually get special rates from doctors' offices and hospitals. But those rates don't automatically apply to uninsured individuals -- or those who haven't yet hit their deductibles. If a medical bill isn't going through your insurance company, negotiate it. Often times, the doctor's office or hospital will come down on the price, so that it's closer to (or if you're lucky, even less than) what your insurer might pay.
If you're in good standing on your credit card account, you have plenty of negotiating power. You can negotiate lower rates, annual fees and higher credit limits. Even if you aren't in good standing, credit card companies can help you come up with a payment plan if you can't afford the minimum payments. You just need to ask.
When hiring someone to maintain your lawn, re-roof your home or pop out a dormer window on your second story, always get at least three quotes. And once you have those quotes, negotiate for a better price or a better deal. As with buying a home, you don't just have to negotiate for a lower price. Some service providers and contractors won't bring down the price, but they will often add in extra services for the same price -- or at least for a discount.
If you've recently gotten away from your cable or Internet company's promotional pricing, you may be in for a shock. Most of us fail to read the fine print that says just how much the service will cost after the promotional period. Before you call the company, look at the promotional offers other services in town are offering. Then, tell them you're considering switching so you can get a better deal. You may not talk them all the way back down to the promo price, but you can get pretty close.
Any time you buy big-ticket items like furniture or appliances, you should negotiate the price. This is especially true if you're buying in quantity -- for example, if you're purchasing both a washer and a dryer or an entire living room set. If the salesperson won't negotiate with you, ask to talk to the manager.
As with credit card companies, if you're in good standing with your insurance company, you may be able to negotiate for better rates. At minimum, you should ask about bundling your insurance policies to see how much that could save you. And if you notice your insurance company is running a new promotional deal that you're not in on, ask about it. The company may sign you up just for asking.
Collections calls are never fun, but they can be productive if you look at them the right way. Once an account of yours has gone to collections, that means the company has paid pennies on the dollar for the account. In other words, your $5,000 debt may have cost them $200 to take over from the original company. So a collections company may accept $1,000 for a $5,000 debt -- or possibly even less. 
Whether you're shopping at a thrift store or a garage sale, you should always negotiate the price of used stuff. You can usually buy two or three things at once to get a better deal, or just negotiate for a better price on a single, bigger-ticket item.
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